Planning for your child’s future can be daunting, especially with rising tuition costs and economic uncertainties. You’ve got 18 years to prepare, and while that might seem like a long time, the sooner you start, the better off you’ll be. Let’s break this down into three key phases: from your kid’s birth until they’re 6 years old, the middle years from 6 to 12…and then those “coming of age” years from 12-18.
Each stage requires different approaches regardless of what their journey will be. Whether that’s a 4-year education, vocational training, or going down an entrepreneurial road – the goal is generally the same: Help your kid with the resources to get a head start in an ever changing world.
Early Stages (0-6 Years): “Get Started”
Right from the beginning, the most important thing is to start early. As soon as your child has a Social Security number, consider doing something for the future. You’ve got a ticking clock—18(ish) years to make an impact. We don’t mean to heighten the anxiety here – just know that starting early means getting the savings habit going and benefit from having ‘time’ on your side to capitalize on compound growth…kinda like reading, going to the gym or eating healthy. It doesn’t matter if you’re contributing small amounts at first; it’s about how building consistent habits over time is how you win in finance. “Get Started”.
One popular and wise way to get started is by setting up a 529 college savings plan. These accounts offer tax advantages as the money grows tax-free if used for qualified education expenses. It doesn’t solve everything, but it’s a solid foundation. Let’s say you contribute $250 a month from day one at a 5.82% assumed rate of return – by the time your child turns 18, that’s $95,000 saved, right? If you wait until they’re six years old to start, you’ll only have $52,000 saved by the time they hit college. That’s the power of compounding. The earlier you get started, the more those small contributions add up over time.
Middle Years (6-12 Years): “Get Serious”
By the time your kid is in elementary school, it’s time to get serious. Those first few years are fascinating as your little kid starts to gain a personality, skills…and maybe even some attitude along the way (here’s to our Tween Parents!!!). We might even start to figure out who they are.
This is the stage where you start thinking about your goals and when the road ahead looks like for school. Re-thinking your savings plan is key as it becomes clear that school bills are likely coming way before retirement does. Consider increasing your contributions and really focusing on growing that education or “launch” fund. In fact…treat education savings like a it’s 401k. As you get raises or bonuses, increase your contributions to the 529 plan. Everything around us is getting more expensive, and if you’re not adjusting your savings, you’re going to fall behind.
These years are also a perfect time to introduce your child to basic financial literacy. This is the age where kids can start learning about the value of a dollar. Maybe they get their first part-time babysitting or dog walking gig or start doing chores around the house for some allowance. They can learn to save, spend, and even donate a portion of their money. It’s about getting them used to the idea that money needs to be managed, and education is a big part of that.
One more thing: Make sure you’ve got a plan for any extra money that comes in, whether it’s from birthdays, holidays, or unexpected bonuses. Put it toward that 529 plan or another savings vehicle. Every little bit helps, and it’s all about maximizing flexibility as college gets closer.
High School Years (12-18 Years): “Get Your Kid Involved”
By the time your kid hits middle school or high school, they should be involved in the planning. It’s important for this to be a team sport. As you guide them through options, help them understand how much college costs and what their role is going to be. This is where they can start having some skin in the game, whether that’s by contributing part of their earnings from a part-time job or beginning to understand the “economic value” of higher education.
These conversations aren’t always easy, but they’re crucial. What do you realistically want to accomplish by the time your kid turns 18? Are you covering 100% of college costs, or are they going to need to contribute with scholarships, loans, or work-study programs? By getting your kid involved in the process, they’re going to have a better understanding of the financial realities and their responsibilities.
Also, high school is the time to start seriously looking at scholarships and financial aid. There are tons of options out there, but it takes time to find them, apply, and follow up. Full-ride athletic scholarships are rare—only a few sports offer them, like men’s football, men’s and women’s basketball, and women’s gymnastics. So, most students are going to need a combination of savings, scholarships, and possibly loans to cover the cost of college.
Preparing for the Final Stretch
Once your kid is ready to head off to college, the work doesn’t stop. It’s important to ensure you’ve got everything in place, from savings to legal documents. Remember, once your child turns 18, they’re legally considered an adult. If something happens—say they get sick or injured at school—you won’t have the same rights you used to. This is why it’s essential to have a healthcare proxy or a power of attorney in place before they head off to college.
The 529 plan, which you’ve been contributing to for years, also needs attention as college approaches. Most of these plans have target-date funds, which automatically adjust to become more conservative as your child gets closer to college. This aids in reducing market volatility as you near the finish line. In the final years of a 529 target date strategy your more conservative portfolio is still growing tax-free. With higher interest rates in 2024 than there were 5 (or even 10) years ago, your investments still have a chance to make progress.
The Final Bell
Saving for college isn’t easy, but by starting early and adjusting your strategy as your child grows, you can make it manageable. From the first savings in a 529 plan to getting your kid involved in financial decisions during their high school years, each phase builds on the last. The most important takeaway? Don’t procrastinate. Whether your kid is a newborn or already in middle school, it’s never too late to get started. Set clear goals, contribute consistently, and be flexible as you go. College is one of the biggest expenses most families will face, but with the right plan in place, it doesn’t have to be overwhelming.
